SEC’s Rules on Demutualisation Restrict Corporate Raiders

The Securities and Exchange Commission has restricted corporate raiders from hijacking the Nigerian Stock Exchange (NSE) during its planned demutualisation exercise.

This is sequel to a rule that stipulates that no single entity/person or related entities are permitted to own more than five per cent in a demutualised securities exchange.

Demutualisation is the process through which any member-owned stock exchange becomes a shareholder-owned exchange and, sometimes, becomes listed.

The Council and members of the NSE had agreed to demutualise the exchange. But the absence of rules and regulations from SEC on the demutualisation process in Nigeria has been one of the factors delaying the NSE demutualisation.

However, three years after, the committee on demutualisation submitted its report to SEC without any action, the acting Director General of the commission, Mounir Gwarzo, last week facilitated the exposure of the regulations to market operators and other stakeholders for their contributions.

Under the proposed draft regulations for demutualisation of securities exchanges in Nigeria, SEC said, “no single entity/person or related entities/persons should be permitted to own, directly or indirectly more than five per cent of the equity and/or voting rights in the demutualised securities exchange.”

The commission added that the aggregate equity interests of members of any specific stakeholder group (for example, brokers and broker/dealers) in the demutualised securities exchange should not exceed 40 per cent.

SEC added that the trading participants who are shareholders of the securities exchange shall with effect from the date of demutualisation reduce their cumulative shareholdings in the demutualised securities exchange to not more than 10 per cent within five years.

The regulations make room for a strategic investor, on the conditions including: that it should provide evidence of technical expertise through previous experience in managing other exchanges, the aggregate number of shares to be offered to the strategic investors shall not be more than 30 per cent of issued and fully paid up capital of the securities exchange. “However, if the Exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the commission,” SEC added